7/17/2009

RELY ON ALIYEV (Dipendere da Aliyev)

On July 13, the EU and Turkey signed what's been hailed as a historic deal to start work on the Nabucco pipeline, which is designed to give Europe an alternative to the unreliable supply of natural gas from Russia's Gazprom.

On paper, it's simple. By 2014, the Nabucco pipeline should be complete, and Azerbaijan will be the first, or at least among the first, to begin shipping gas to Europe at a modest rate of 8 billion cubic meters (bcm) per year.

The pipeline -- which will run 3,300 kilometers from eastern Turkey, through the Balkans, and finally to Austria -- should be fully operational by 2020, at which time it is expected to be pumping 31 bcm of gas to Europe each year, or approximately 10 percent of Europe's annual gas consumption.

That would relieve Europe of the risk of relying on Russia for gas, although the EU says that's not the point. But privately, EU officials say the continent has to find an alternative source, given Russia's recurring price disputes with transit country Ukraine that last winter left Europe struggling with a gas shortage.

Yet there are questions as to whether Azerbaijan can meet its annual commitment of gas. Baku says it has enough to get the pipeline going, but estimates of its reserves are just that: estimates.

Stephen Blank, who is a professor of national security affairs at the U.S. Army War College, says the issue is not whether Azerbaijan has an adequate supply of gas to get Nabucco started, but whether the country can afford to finish the project and will be able to resist pressure from Russia.

While Blank acknowledges that one issue is the question whether the Nabucco project has the financial muscle to "give their suppliers credible guarantees that a pipeline can be built from their country, through the Caspian Sea or [somewhere] else [in] Europe, and will it stand up to Russia?

"It looks like it will stand up to Russia, but the financing has to be there," he continues. "These are arranged marriages, and like arranged marriages, they're supposed to last a long time, so they take a long time to negotiate."

Blank says these political and economic risks merge into one overall risk: That Russia may persuade Azerbaijan to withhold its gas from Nabucco, and as a result, perhaps no one in the region will step up to supply financing for the pipeline.

If that happens, he says, Russia will have won a significant battle in what he calls an economic war that Russia has been waging on Europe.

"If Nabucco can't be built, [Russia's] South Stream [pipeline project] or the Russian pipeline through Ukraine and Belarus become the only option to the south. And Russia gets the ability to play the great power game and leverage its power in Europe as a gas power," Blank notes.

He says Moscow has "nothing else they can use [but] a lot of economic and political intrigue. It's nasty, it's brutal, but it's mainly economic. It's not guns and troops moving over borders. But it's hard power."

Azerbaijan isn't the only source of gas for Nabucco. EU officials are reluctant to discuss alternatives to Azerbaijan, but they have to be considered, says Kenneth Green, who studies energy issues at the American Enterprise Institute, a private Washington policy center.

But Green stresses that not all alternatives can be considered equally, either because of how much -- or little -- gas they can generate, and for political reasons as well.

He points to Iran and Iraq as good examples.Both are said to have generous gas reserves, but for the immediate future, he says, Iraq is a far more reliable source of gas than Iran, at least from a political standpoint.

"We have an interest in helping Iraq get back on its feet and realize revenues for rebuilding through [the] sale of natural gas and because they are, at least titularly now, they're a democratic regime that's going to be friendly to the West. One has a greater expectation that they won't play games politically with the supply," Green says.

"But when you have Iran, which is under sanctions already because of its nuclear program, is making threats to U.S. allies and to European allies -- I mean, going from Gazprom to depending on Iran is like going from the frying pan into the fire."

Green says it's also possible that, given its recent electoral trouble, Iran, too, may have a change of government and become a reliable source of gas, even if its foreign policy were to remain contrary to Western interests. That's because now, Iran lets ideology rule its economy.

Iran can maintain its current ideology -- including a harsh foreign policy toward Israel, plus support for militant groups such as Hamas and Hizballah -- if it separates politics from economics. In other words, it could do business with the EU, with which it has strong disagreements, as long as it makes a profit doing so.

Iran aside, Green says other Caspian states -- Kazakhstan and, in particular, Turkmenistan -- might be even better alternatives to Azerbaijan than Iran. But these countries also are former Soviet republics, and Russia may be able to persuade them to run their gas through Russian pipelines, not through Nabucco.

Like Blank, Green says there are so many options, so many countries, and so many other variables involved that it would be foolhardy to try to anticipate what will happen with Nabucco -- even whether it will eventually be built.(rferl)